GM Auto Loan Financing

GM is examining its option to repurchase its former auto lending business in an attempt to make it look more attractive in the wake of its initial public stock offering. In 2006 GM sold a large part of its stake in GMAC which left it at a disadvantage when compared to other auto manufacturers such as Hyundai and Toyota who have their own financing arm.

A re-entry into the auto loan financing business will give GM more control of auto loan rates and could use that as incentive to drive more car sales. With an average rate of 6 percent for a new car loan providing the buyer has good credit the auto lending business is indeed a profitable sector.

GMAC, which GM sold at the height of the financial crisis made $653 million in the first quarter of 2010.

GM is on its way to a solid recovery.The auto marker repaid $6.7 billion of the the government $61% ownership of the company. By going public, the company hopes to pay back the loan quickly. GM, at this point is very interested in re-purchasing GMAC, now named Ally Bank.

The problem is that Ally also has a mortgage lending business which is not doing quit well. However, GM has the option of create its own in house financing from scratch or to acquire another auto loan player. Having its own financing arm could give GM the leverage it needs to work with dealership and provide offering that drive sales.

However, with the government as a main owner of GM, it is difficult for the auto make to find funding for such a venture. If GM is able to pay of the government quickly, it will then find investors willing to entertain such a move